By Neil Saunders
Although overall revenue at DSW continues to be boosted by the group’s Canadian acquisitions, which have not yet annualized out, there is no ignoring the strong contribution from the underlying business. Comparable sales rose by 5.4% in the quarter—which, although down from the past two reporting periods, remains a healthy, market-beating rate of growth.
Several factors have driven this spectacular performance: strong marketing, a relevant product offer, initiatives designed to drive customer traffic to stores, and the current dynamics of the consumer economy.
Constantly changing assortment
Regarding product offer, one of the most compelling things about DSW is its ability to quickly capitalize on footwear fashion trends. The assortment has improved significantly over the past year. Customer data shows that more shoppers now come into the store for fashionable buys, as well as replacement purchases of basic footwear. This has helped drive up visit frequency and average transaction values, both of which are helpful to sales. The impact is most noticeable among female shoppers, but the effect is spreading to men and kids.
The constantly changing assortment and the treasure-hunt type of proposition also help drive footfall to stores. They also create a sense of urgency in buying. Customers know that certain lines may not be repeated, so if they don’t purchase immediately, they could lose out.
Aside from the dynamics of the product offer, DSW receives applause for its attempts to drive traffic to stores in other ways. The addition of the W Nail Bar and the various footwear repair services to the proposition gives customers even more reasons to visit and provides functions that cannot be easily replicated online.
Creating an emotional connection
The nail bar concept has been well received and delivers a service that is directly relevant to many DSW shoppers. Beyond bringing people into stores, it also generates revenue and helps to create a more emotional connection with the DSW brand. Although it is early, we also see signs that the nail bars are attracting new, younger shoppers. DSW has more potential in the rollout of services over the next couple of years. This is seen as a critical differentiator from rivals that will keep stores relevant.
The consumer economy was also helpful this quarter. Consumers are in the sweet spot of having enough money to comfortably make discretionary purchases, but are also sufficiently cautious to seek bargains and good value for money. This plays directly into DSW’s hands. As such, we think that gains have been made from rival footwear players. We believe that this kind of backdrop will persist for much of 2019, which bodes well for DSW’s fortunes.
Overall, we remain satisfied with the underlying fundamentals at DSW. The integration of the acquisitions, more investment in digital, the success of the relaunched loyalty program, and the continued push into services will all provide buoyancy to growth over the year ahead. The competitive outlook is more pressurized, but DSW’s unique model allows the chain to hold its own against the rise of off-price, Amazon, and other specialists.
Neil Saunders is managing director of research firm GlobalData Retail.